Adani Crisis: Jefferies reiterates Indian banks better placed, but warns of dent in capex cycle

While reiterating that Indian banks are better placed with regards to the debt exposure to the Adani Group, global brokerage Jefferies affirmed that it doesn't see material risk arising for the Indian banking sector as debt to the group forms 0.5% of total loans — 0.7% for PSU banks and 0.3% for private banks.

Adani Group has a consolidated gross debt of Rs 2.3 lakh crore and net debt of Rs 2 lakh crore, spread across group companies as of September 22. The top companies by net debt levels are Adani Green Energy, Adani Ports, Adani Power and Adani Transmission with Rs 30,000 crore - Rs 40,000 crore in net debt
each.


“While acquisition of cement business raises debt, it generates cash as well," Jefferies said. The brokerage said the quality of banks' exposure is better, with high concentration to cash-generating, operating assets.

"In fact, Indian banks haven't participated in loans on pledge of shares as well as acquisition financing, partly thanks to restrictions imposed by RBI on banks. In that segment, foreign banks could have 80-90% of the market share," it said.

However, Jefferies noted that realignment of the capex commitments from the group could affect the pipeline of capex cycle as well as loan growth for banks.

The conglomerate's listed companies have together lost about $125 billion in market value in three weeks after a report by Hindenburg Research alleged improper use of offshore tax havens and stock manipulation. The Adani group has denied the allegations and threatened legal action against Hindenburg.

The group said its balance sheet is "very healthy" and is laser focused on continuing business momentum, as it looked to reassure investors to keep faith in the group despite a share rout triggered by a damning report by a US short-seller.

Group CFO Jugeshinder (Robbie) Singh in an earnings call said the group is confident of its internal controls, compliance and corporate governance.

"Our balance sheet is very healthy. We have industry-leading development capabilities, strong corporate governance, secure assets and strong cash flows," Singh said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)